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(express or implied) concerning any information contained in or any aspect of this report.  
Copyright © Hong Kong Monetary Authority | October 2023  
All rights reserved.  
This report was published by the Hong Kong Monetary Authority with contributions from:  
2
Table of Contents  
04  
06  
07  
09  
11  
Foreword  
Executive Summary  
1 Introduction to Project e-HKD  
2 e-HKD Pilot Programme  
3 Case Studies: Potential Use Cases  
3
3
.1  
.2  
Overview  
Case Studies  
Case Study 1: Full-Fledged Payments  
Case Study 2: Programmable Payments  
Case Study 3: Offline Payments  
Case Study 4: Tokenised Deposits  
Case Study 5: Settlement Instructions for Web3  
Case Study 6: Settlement of Tokenised Assets  
23  
4 Evaluation  
4
4
.1  
.2  
Pilot Feedback and Assessment  
Technical Considerations: DLT Interoperability and Scalability  
3
3
5
5 Way Forward  
3
6 References  
3
3
6
7
Appendix A: Factsheets / Supplementary Reports  
Appendix B: Glossary  
3
Foreword  
The world has witnessed a remarkable evolution in the way we view and use money. With the advent of,  
to name a few examples, smartphone-driven transactions, virtual banking, and AI-driven customer  
servicing, our expectations on how our money should work for us have continued to rise as we require  
faster, more accessible, and more affordable ways of managing and using our money. Hong Kong’s  
complex ecosystem of banks, fintech firms, and other industry participants has made remarkable strides  
in this regard by continuously innovating in response to ever-changing market demands and trends.  
In tandem with these developments, the topic of central bank digital currencies (CBDCs) continues to  
permeate the central banking community, with most jurisdictions engaging in some form of work on  
retail CBDCs (rCBDCs). When positioned and implemented properly, an rCBDC has the potential to  
unlock unrealised economic value by transforming the ways we transact and the systems we transact on.  
However, its implementation will require conscious and careful balancing with existing systems, processes  
and stakeholders.  
The HKMA embarked on Project e-HKD two years ago to study the case for issuing an rCBDC in  
Hong Kong. Given the maturity of Hong Kong’s retail payment ecosystem, we opted for a use-case  
driven approach to explore where an e-HKD could bring additional value to consumers and businesses.  
The e-HKD Pilot Programme launched last year underpins the HKMA’s joint efforts with the industry to  
experientially evaluate viable applications.  
This report details our key findings and assessment from Phase 1 of the e-HKD Pilot Programme, and it  
represents another significant milestone for Project e-HKD. Whilst the HKMA has not decided on whether  
or when to introduce an e-HKD, these pilots will enrich our repository of knowledge formed under  
Project e-HKD and inform our future policy decisions. We also believe that our experiences and learnings  
will facilitate further research and discussion on rCBDCs among policy makers, the industry, and the  
international community.  
The journey that lies ahead is an exciting and rewarding one. We have fostered a culture of continued  
innovation within the industry while maintaining Hong Kong’s stable, long-established banking system.  
In this regard, the HKMA commits to ensuring this project addresses the challenges of today and the future.  
Howard Lee  
DEPUTY CHIEF EXECUTIVE  
HONG KONG MONETARY AUTHORITY  
4
Executive Summary  
Central bank digital currencies (CBDCs) have gained significant traction globally, with many central  
banks recognising the potential of wholesale and retail CBDCs. The HKMA has been researching CBDCs  
as part of its “Fintech 2025” strategy, with a view to increasing Hong Kong’s readiness in issuing CBDCs.  
The HKMA embarked on its retail CBDC (rCBDC) journey with Project e-HKD in 2021. As part of the  
three-rail approach in paving the way for the potential implementation of an rCBDC in Hong Kong,  
i.e. an e-HKD, the HKMA launched the e-HKD Pilot Programme in November 2022. The programme is  
a joint effort between the HKMA and the industry to explore and evaluate the commercial viability of  
potential use cases for an e-HKD.  
This report follows the conclusion of Phase 1 of the programme, and discusses the key findings, learnings,  
and the HKMA’s assessment of the conducted pilots. Phase 1 took deep dives into potential domestic  
and retail use cases in six categories: full-fledged payments, programmable payments, offline payments,  
tokenised deposits, settlement of Web3 transactions, and settlement of tokenised assets. 16 firms  
from financial, payment and technology sectors were selected to participate.  
While Hong Kong’s retail payment ecosystem currently provides consumers and businesses with a wide  
range of payment options enabled by well-established and robust financial infrastructure, the pilots  
under Phase 1 uncovered three areas where an e-HKD could add unique value to the current ecosystem.  
These are: programmability, tokenisation, and atomic settlement. An e-HKD not only has the potential  
to facilitate faster, more cost-efficient, and more inclusive transactions, but it could also unlock new types  
of economic transactions. With that said, the potential and prerequisites for realising such unique value at  
scale to substantiate the issuance of an e-HKD are subject to market development and further investigation.  
In addition, a number of inefficiencies today are the result of longstanding business norms and processes,  
rather than deficiencies in technology. An e-HKD, despite its potential use of new technologies, may not  
be the cure-all to all inefficiencies.  
The HKMA has not yet reached a policy decision on whether or when to introduce an e-HKD. Careful  
consideration should be given to the positioning of an e-HKD, as well as the roles that the HKMA and  
the industry may take up in implementing and operating an e-HKD. Other factors such as policy and  
technical design as well as legal considerations will also need to be studied.  
Phase 1 of the e-HKD Pilot Programme has provided valuable insight into the potential use cases for  
an e-HKD, and has also raised a number of areas for future study. The HKMA will examine the identified  
business and implementation issues in greater depth in the next phase of the e-HKD Pilot Programme.  
6
1
Introduction to Project e-HKD  
A selection of banknotes issued by the three note-issuing banks in Hong Kong (i.e. The Hongkong and Shanghai Banking  
Corporation Limited, Standard Chartered Bank (Hong Kong) Limited, and Bank of China (Hong Kong) Limited). Cash (such  
as the banknotes above, and $10 notes and coins issued by the HKSAR Government) is legal tender and an accessible and  
reliable means of payment. A central bank digital currency – a digital version of cash – should likewise provide the same  
level of accessibility and reliability in the digital economy.  
_
_________  
The Hong Kong Monetary Authority (HKMA) has  
been researching central bank digital currencies  
and low-cost manner. This project is well  
recognised by the international financial  
community, and is expected to enter a minimum  
viable product (MVP) phase in 2024.  
(
CBDCs) as part of its “Fintech 2025” strategy,  
with a view to increasing Hong Kong’s readiness  
in issuing CBDCs at wholesale and retail levels  
and promoting financial innovation in Hong Kong.  
On the front of retail CBDCs (rCBDCs), the HKMA  
embarked on its journey with Project e-HKD  
in 2021, and has participated actively in cross-  
jurisdictional projects.  
The HKMA’s exploration of CBDCs dates back  
to 2017, when its initial focus was on wholesale  
CBDCs (wCBDCs) under Project LionRock.  
This project gradually expanded and evolved  
into Project mBridge in 2021.  
The HKMA previously collaborated with BISIH  
HKC and the Hong Kong Applied Science and  
Technology Research Institute (ASTRI) on  
Project Aurum in creating a prototype two-tier  
CBDC system, which comprises a wholesale  
interbank system and a retail e-wallet system.  
A project report was published in October 2022.  
Project mBridge is a joint project between the  
HKMA, Bank for International Settlements  
Innovation Hub Hong Kong Centre (BISIH HKC),  
and three other central banks. It explores the use  
of a wholesale, multi-CBDC, distributed ledger  
technology (DLT)-based platform to enable  
commercial participants to conduct cross-border  
business and international trade flows in an efficient  
More recently, the HKMA completed Project Sela  
with BISIH HKC and the Bank of Israel, and a  
report was published in September 2023.  
7
This project was a joint rCBDC experiment with  
a focus on cybersecurity. It demonstrated the  
technical feasibility of an rCBDC architecture that  
could promote competition and innovation in  
digital payments, by allowing non-bank payment  
intermediaries to connect directly to the CBDC  
ledger of the central bank.  
for the potential implementation of an e-HKD (see  
Figure 1). Given the plethora of convenient retail  
payment options in Hong Kong, an e-HKD would  
need to add unique value to the current payment  
ecosystem, for instance, by providing new or  
innovative use cases. In this regard, the HKMA has  
adopted a use-case driven approach, and launched  
the e-HKD Pilot Programme as a key component  
of Rail 2 to explore commercially viable use cases  
for an e-HKD in collaboration with the industry.  
The HKMA also established a CBDC Expert Group  
in October 2023 comprising leading academics to  
support Hong Kong’s future exploration of key  
policy and technical issues surrounding CBDCs,  
such as privacy protection, cybersecurity, and  
interoperability. This group facilitates collaboration  
between the government, industry and academia  
on CBDC research as well.  
This report follows the conclusion of Phase 1 of  
the programme, and discusses the key findings,  
learnings, and the HKMA’s overall assessment of  
the conducted pilots. Phase 1 focuses on domestic  
and retail use cases in six categories: full-fledged  
payments, programmable payments, offline  
On Project e-HKD, the HKMA has conducted two  
rounds of market consultations, one on high-level  
technical designs, and the other on key policy  
payments, tokenised deposits, settlement of Web3  
transactions, and settlement of tokenised assets.  
and design issues . Respondents were generally  
The HKMA has not yet reached a policy decision  
on whether or when to introduce an e-HKD.  
The lessons learnt from the programme will  
provide important insights that will inform the  
HKMA in making its decision. The HKMA remains  
open-minded towards the design features of an  
e-HKD, and will continue to follow international  
developments on CBDCs closely and consider  
feedback from different stakeholders (in particular  
the industry and the general public).  
receptive to an e-HKD, although they highlighted  
the need to study the commercial viability of use  
cases and other issues such as privacy protections  
and legal considerations.  
Taking into account feedback received during  
the market consultations, the HKMA published a  
,
position paper in September 2022 to set out its  
policy stance and outline a three-rail approach  
Figure 1 – Three-Rail Approach for the Potential Implementation of an e-HKD  
1
See “e-HKD: A Technical Perspective” (October 2021) and “e-HKD: A Policy and Design Perspective” (April 2022)  
See “e-HKD: Charting the Next Steps” (September 2022)  
2
8
 
 
2
e-HKD Pilot Programme  
This section discusses the HKMA’s engagement with the industry under  
the e-HKD Pilot Programme and the launch of the e-HKD Sandbox  
for the development of use cases.  
_
_________  
The HKMA launched the e-HKD Pilot Programme  
in November 2022 and invited industry participants  
to submit potential use cases for an e-HKD.  
There was substantial interest and engagement  
from the industry. Submissions were received from  
both domestic and global firms, ranging from small  
fintech firms to large financial institutions.  
In this connection, participants were granted  
the option of using the e-HKD Sandbox. This  
sandbox is based on Project Aurum, and it was  
developed and launched by the HKMA in  
partnership with the Hong Kong Applied Science  
and Technology Research Institute (ASTRI).  
It offers a technical environment to accelerate  
prototyping, development and testing, and is  
intended to enable participants to deep dive  
into their use cases, examine implementation  
and design issues relating to an e-HKD, and  
gain actual experience.  
Following an assessment based on pre-defined  
criteria (see Figure 2), the HKMA decided to focus  
on domestic and retail use cases in Phase 1 of the  
e-HKD Pilot Programme. Other use cases which  
were received (such as corporate use cases) may  
be explored in future phases of the programme.  
Participants also had the option of using the  
HKMA’s Fintech Supervisory Sandbox (FSS).  
The FSS allows banks and their partnering  
technology firms to conduct pilot trials of their  
fintech initiatives involving a limited number of  
participating customers, without the need to  
achieve full compliance with the HKMA’s  
supervisory requirements.  
1
6 firms from financial, payment and technology  
sectors were selected by the HKMA to participate  
in Phase 1. Their use cases spanned six categories,  
namely: full-fledged payments, programmable  
payments, offline payments, tokenised deposits,  
settlement of Web3 transactions, and settlement  
of tokenised assets. A commencement event was  
hosted on 18 May 2023 to kick-start the pilots.  
Whilst participants were granted flexibility by  
the HKMA in designing a hypothetical e-HKD  
for use in their pilots, their designs may not  
necessarily translate into the final design of an  
e-HKD, should it be issued. A number of relevant  
technical considerations are discussed in this report.  
For Phase 1, pilot participants were granted  
flexibility in determining the scope of features,  
technical design, and other design aspects of  
a hypothetical e-HKD for use in their pilots.  
9
Figure 2 – Assessment Criteria for Use Cases  
Forefront of  
innovation  
The solution should showcase  
innovative elements and differ  
significantly from existing market  
offerings (such as a new business  
model, market, or version of an  
existing product).  
Customer-centric  
The solution should enhance the  
overall customer experience or  
solve their existing pain points.  
Readily testable  
The solution should allow for  
market testing with select group(s)  
of customers. Relevant risks  
should be identified with  
appropriate mitigants in place,  
and sufficient resources including  
capital and manpower  
should be committed.  
Regulation-  
compliant  
The solution should  
be compliant with existing  
licensing requirements.  
Hong Kong-  
centric  
The solution should maximise the  
potential use of an e-HKD.  
10  
3
Case Studies: Potential Use Cases  
Phase 1 of the e-HKD Pilot Programme took deep dives into  
potential use cases for an e-HKD in six categories, namely full-fledged  
payments, programmable payments, offline payments, tokenised deposits,  
settlement of Web3 transactions, and settlement of tokenised assets.  
This section discusses these potential use cases as proposed by pilot  
participants in the form of six case studies.  
_
_________  
3.1 Overview  
A total of 16 firms were selected to participate in Phase 1, conducting a total of 14 pilots across  
six categories (see Table 1) . Details of each pilot may be found in the factsheets / supplementary  
reports prepared by pilot participants, accessible via the links in Appendix A.  
Table 1 – Summary of Pilots by Category and Participant  
Category  
Pilot Participant(s)  
(
1) Full-Fledged Payments  
2) Programmable Payments  
The Hongkong and Shanghai Banking Corporation Limited  
Alipay Financial Services (HK) Limited4  
ARTA-Emali HK Limited  
(
Bank of China (Hong Kong) Limited  
China Construction Bank (Asia) Corporation Limited  
Hang Seng Bank Limited4  
(
(
3) Offline Payments  
Giesecke+Devrient  
Standard Chartered Bank (Hong Kong) Limited  
Industrial and Commercial Bank of China (Asia) Limited  
4) Tokenised Deposits  
Hang Seng Bank Limited  
The Hongkong and Shanghai Banking Corporation Limited  
Visa Inc.  
(
(
5) Settlement of Web3 Transactions  
6) Settlement of Tokenised Assets  
Mastercard Asia/Pacific Pte. Ltd.  
Fubon Bank (Hong Kong) Limited  
Ripple Labs Inc.  
Boston Consulting Group  
HKT Payment Limited  
ZA Bank Limited  
3
A number of pilots have evolved beyond their original category since the HKMA’s announcement on 18 May 2023 and  
this has been reflected accordingly.  
4
AlipayHK and Hang Seng Bank have each conducted two pilots under the category of “Programmable Payments”.  
11  
 
 
 
3.2 Case Studies  
This section discusses the potential use cases for  
an e-HKD as proposed by pilot participants in the  
form of six case studies. These pilots are neither  
indicative nor definitive of the functionality,  
architecture or positioning of an e-HKD, should  
it be issued. These use cases are only intended to  
facilitate the HKMA and the industry in evaluating  
the commercial viability of an e-HKD. Furthermore,  
neither this report nor the pilots are conclusive  
of any resulting roles or responsibilities that  
different stakeholders (such as the HKMA and  
the Government of the Hong Kong Special  
Administrative Region (HKSAR Government))  
may take up in implementing and operating an  
e-HKD, should it be issued.  
lengthy payment chain and the use of net  
settlement for card networks and similar solutions  
(for instance, settling once a day at day-end).  
HSBC explored in their pilot the use of a private  
blockchain network to transact hypothetical e-HKD  
between consumers and merchants, with the  
objective of testing instant, final settlement at a  
transaction level. This can remove the need for  
frequent liquidity management payments for  
settlement purposes. Through this network, both  
consumers and merchants would be able to bypass  
today’s intermediaries to enjoy a quicker and more  
efficient settlement process, as well as potentially  
lower transaction costs.  
Case Study 2: Programmable Payments  
Case Study 1: Full-Fledged Payments  
Programmable payments allow conditions to  
be imposed to govern when and how payments  
should be initiated. Such conditions are typically  
Physical cash is the only type of central bank money  
available to the general public today. An e-HKD  
would be a new form of central bank money  
and akin to a “digital cash”, preserving the same  
characteristics as physical cash such as negligible  
transaction cost and instantaneous settlement  
finality. An e-HKD would also serve as a full-fledged  
payment alternative, enabling money to be stored  
and transferred in a similar manner to physical  
cash and other electronic means of payments  
implemented through the use of a smart contract  
in conjunction with application programming  
interfaces (APIs) . Programmable payments are  
not new and are already used to facilitate direct  
debit and recurring payments. However, in their  
current form, they only support simple and  
unidirectional payments (such as bill payments )  
which are triggered regardless of whether the  
underlying service has been provided.  
(
such as via the Faster Payment System (FPS),  
credit cards, and e-wallets).  
In contrast, smart contracts enable consumers  
and businesses (such as merchants) to directly  
embed instructions into an electronic contract to  
initiate payments once pre-defined conditions  
are fulfilled. These conditions could include the  
amount to be paid and the frequency of payments  
in relation to the level of service provided.  
In addition to these baseline characteristics, an  
e-HKD could potentially enable payments to be  
settled in a cost and time-efficient manner by  
bypassing intermediaries typically involved in an  
electronic payment flow. Currently, merchants may  
not receive funds in real-time, and may also be  
exposed to reconciliation errors in the event of  
erroneous transactions. This is often due to a  
Smart contracts also allow for the multidirectional  
5
Blockchain is a type of distributed ledger technology (DLT). DLT refers to a technology architecture where a ledger is  
replicated across multiple entities, allowing records to be simultaneously accessed, validated and updated.  
6
A smart contract refers to an agreement between participants where the terms, predetermined conditions and outcomes  
have been coded into a computer program, enabling the agreement and its associated outcomes to be automatically executed  
when certain conditions have been met.  
7
An API is a software interface enabling two or more programs (which may be running on the same or different systems) to  
communicate with each other.  
8
When a customer instructs their bank to make a recurring payment, the bank programs related conditions (such as the  
frequency of payments) into their own system, which then initiates the payments as specified. The resulting payments do not  
contain these conditions.  
12  
 
 
 
 
exchange of information on whether the said  
conditions have been fulfilled. This could enable  
the release of a payment to be automatically  
performed once the consumer has electronically  
acknowledged receipt of a service.  
Whilst this characteristic of embedding in  
programmable money can be operationally  
beneficial, a programmable money may potentially  
undermine the public’s trust in the legal tender.  
Given the restrictions on how and when it can  
be spent, it could be considered less valuable  
compared to other forms of money such as  
physical cash. Furthermore, it may not be easily  
transferrable into a less restricted form of money.  
The topic of what constitutes programmable money  
as well as whether central banks should issue  
programmable money is a controversial one, and  
Programmability Concepts  
Programmable payments” are often explored  
by central banks in conjunction with the concept  
of “programmable money” for two different means  
of implementation. Both of these concepts fall  
under the umbrella of “programmability”, which  
generally refers to the ability of a software  
application or hardware device to accept and  
execute a set of code. However, in the context of  
payments and related concepts, “programmability”  
is considered ill-defined.  
entails legal issues which will require further study .  
With this in consideration, a programmable  
e-HKD incorporating smart contract functionality  
could unlock new modes of business transactions  
between consumers and businesses, and encourage  
wider adoption of conditional settlements for  
retail payments. Conventional payment systems  
currently lack functionality to allow for this level  
of programmability at scale, particularly in the  
In programmable payments, the money that is  
transferred merely serves as a form of value.  
Although such payments are only initiated as a  
result of fulfilling certain pre-defined conditions,  
there are no restrictions imposed on how the  
money can be spent. This also means that the  
integrity of a payment can be compromised if there  
are issues like loss, fraud or errors at the point of  
initiation. This is in line with how physical cash and  
electronic payments work today, where physical  
and electronic controls are typically implemented  
to control access to money, but the money can  
generally be used for any purpose as long as it is  
in one’s possession.  
retail space. In the institutional space, escrows  
enable complex transactions to be performed in  
accordance with pre-agreed conditions, but  
they entail substantial overhead and complexity  
since the escrow agent has to manually validate  
each condition and effect the resulting actions  
and payments.  
Consumer Protections  
A programmable e-HKD could improve consumer  
protections and promote trust between consumers  
and businesses by leveraging the rich functionality  
of smart contracts.  
In contrast, programmable money involves  
embedding the pre-defined conditions into the  
money itself, meaning that it will retain its pre-  
defined conditions regardless of who it is  
transferred to. Typically, these pre-defined  
conditions are used to restrict how the money can  
be spent. An analogy is a store-purchased voucher  
that can only be used on certain goods within the  
store, regardless of who is holding the voucher.  
In Hong Kong, smaller merchants tend to prefer  
cash in advance for goods/services, as it benefits  
the merchant in terms of cash flow. However, this  
exposes the consumer to the risk of losing their  
funds, or the risk of the merchant not delivering  
the promised goods/services (such as in the event  
of bankruptcy or merchant malpractice).  
9
Although this case study is titled “Programmable Payments”, this report does not distinguish whether a given pilot makes use  
of a hypothetical e-HKD as a programmable payment or a programmable money (along with any other related concepts). It also  
does not indicate or conclude which concept may apply to an e-HKD.  
1
0
The term “programmable e-HKD” applies solely in the context of this report, and refers to a hypothetical e-HKD incorporating  
programmability features.  
1
1
An escrow is where a trusted agent to one or more parties to a transaction holds assets (such as funds and securities) and  
only releases them when conditions have been met.  
13  
 
 
 
In this regard, a programmable e-HKD could offer  
an option for consumers to make phased payments  
for goods/services and to safeguard their funds.  
Whilst some businesses may view escrows to  
be operationally intensive, willing businesses may  
use this to demonstrate integrity and differentiate  
themselves from other businesses to attract  
potential business (especially when the business  
is building initial consumer trust). However, without  
the benefits of advanced cash flows, merchants may  
have to adjust their pricing or financing models.  
(
1) China Construction Bank (Asia) (CCB (Asia))  
and (2) Bank of China (Hong Kong) explored in  
their pilots the viability of a “retail escrow” product  
using a hypothetical e-HKD for holding consumer  
prepayments towards the purchase of a good  
or service (see Figure 3). An e-HKD could enable  
escrow to be scaled as no agent is needed to  
manually perform validation and payment release.  
After the consumer has prepaid their funds,  
the funds can be held in escrow and disbursed  
automatically to the business only when the  
conditions have been satisfied.  
Loyalty Programmes and Targeted Spending  
A programmable e-HKD could enable merchants  
to elevate their loyalty programmes, obtain better  
consumer insights, and enhance their targeted  
marketing spending.  
The current retail payment ecosystem places  
the onus of building, tracking and executing  
programmes solely on the merchant, requiring  
them to either engage a service provider to  
integrate these services into their payment  
channels, or dedicate operational and technical  
resources to manually apply discounts and track  
rewards for each transaction. Larger merchants  
are, as a result, at an advantage as they benefit  
from economies of scale in terms of consumer  
insights, resources and tools to determine how  
to best deploy their programmes.  
This creates an incentive for the business to  
maintain a good level of service and build strong  
initial consumer trust, as they have yet to receive  
the funds (but they can ascertain the consumer  
has paid). This in turn means that in the event of  
a business default, the consumer is no longer  
exposed to the risk of losing their funds.  
CCB (Asia) also explored the use of a hypothetical  
e-HKD for subscriptions which operate in a similar  
manner to prepayments where instead of an  
upfront prepayment, a recurring amount is  
disbursed to the business with the option of  
triggering a refund mechanism as needed.  
A programmable e-HKD could level the playing  
field for smaller merchants by providing low-cost  
access to similar capabilities, such as the automatic  
Figure 3 – Prepayment and Subscription using e-HKD  
14  
dispensing and acceptance of rewards at the time  
of sale. This streamlines the consumers’ experience  
when making payments, encouraging loyalty and  
repeat business whilst freeing up operational  
resources on the part of merchants. In addition,  
an e-HKD could embed useful consumer identifiers  
allowing merchants to better allocate targeted  
spending to attract their intended consumers.  
However, such new functionalities would require  
businesses to have certain technical competence  
in creating and maintaining the programme codes.  
New infrastructure may also be needed (for  
Investments  
A programmable e-HKD could enable investors to  
enjoy a faster turnaround and a closer to real-time  
market price when subscribing to investment funds.  
Investors typically complete a number of processes  
when subscribing to a fund such as checks, pre-  
funding, and order placement and settlement.  
The process today of fulfilling investment fund  
orders is not instantaneous, as the fund manager  
is only obligated to fulfil the order by day-end after  
receiving the investor’s prefunding. As a result, pre-  
fulfilment steps such as obtaining a market price  
for the fund may not be performed instantaneously.  
instance, to onboard and categorise merchants).  
(
1) Hang Seng Bank, (2) HSBC12 and (3) AlipayHK  
explored in their pilots the viability of a low-cost  
alternative for merchants of all sizes to build  
and execute their loyalty programmes using a  
hypothetical e-HKD. Through the use of smart  
contracts, merchants of all sizes can offer discount  
and reward programmes to consumers without  
additional ongoing effort in managing these  
programmes, with the option of automatically  
applying discounts at the time of sale. This in  
turn enables merchants to dedicate resources to  
programme optimisation instead of execution.  
An e-HKD being common to financial institutions  
could also enable merchants to target first-time  
consumers more accurately and cost-effectively  
irrespective of the payment channel or financial  
institution used.  
ARTA-Emali explored in their pilot the atomic  
settlement of a fund order using a hypothetical  
e-HKD, and the ability to integrate operational  
processes involving upstream and downstream  
investment intermediaries (for instance, placing  
agents, fund managers, fund administrators) in a  
straight-through manner through the use of smart  
contracts (see Figure 4). The pilot also explored the  
integration of investors’ credentials with the smart  
contract using decentralised identities, in order  
to further streamline onboarding processes prior  
to the fulfilment of an order.  
Shortly after an investor initiates a fund investment  
order, their e-HKD is escrowed in a smart contract-  
based vault. The e-HKD is only released to the fund  
manager when the fund manager delivers the  
tokenised funds to the investor.  
Figure 4 – Fund Investment using e-HKD  
1
2
This is a continuation of their pilot in Case Study 1.  
15  
 
An e-HKD has the potential from a technical viewpoint  
to unlock new ways of transacting, integrating payment  
processes, and mitigating risk for both consumers and  
businesses, in turn enabling businesses to focus on  
product innovation rather than execution.  
Under this delivery versus payment (DvP) model,  
the fund manager is exposed to less risk as they  
have the knowledge and confidence that the  
investor has already prefunded their order. The fund  
manager also has an incentive to obtain the market  
price and satisfy the order as quickly as possible to  
receive the investor’s funds. This mode of straight-  
through atomic settlement can reduce operational  
overhead. The investor in turn can enjoy faster  
order execution and a timelier entry to the market,  
allowing them to potentially benefit from an extra  
day of interest income, say with the purchase of a  
tokenised bond.  
operationally-intensive on the part of each SVF  
operator as they have to independently configure  
their platform to effect the intended use of the  
funds, and they will also need to reconcile the  
funds after it has been used by recipients.  
Furthermore, merchants generally do not receive  
the funds in real-time via the SVF, and recipients  
of the funds are limited to the merchants available  
on the SVF that they have selected, without an easy  
option of switching their remaining vouchers to  
another platform.  
(
1) AlipayHK and (2) Hang Seng Bank13 explored  
in their pilots a more cost and operationally-  
efficient mechanism to disburse government  
subsidies using a hypothetical e-HKD.  
The government first programs the scope of  
distribution (such as the list of whitelisted  
merchants) and other relevant conditions into the  
smart contract, before tokenising and distributing  
the funds to designated parties for onward  
distribution to the intended subsidy recipients.  
Fund Ring-fencing, Government Disbursements  
A programmable e-HKD could embed fund  
ringfencing and tracking functionality, enabling  
funds with designated spending conditions to be  
safekept, spent and tracked without requiring the  
funds to be confined to a single commercial  
payment channel. This can be of use where the  
issuer of a given set of funds may not have a  
particular affiliation with a commercial payment  
channel, for instance, the government in issuing  
subsidies, reimbursements and consumption  
vouchers to the public. Payment recipients would  
nevertheless still have their own e-HKD wallet.  
This streamlined process enables the issuer of  
the funds (being the government in these pilots),  
SVF operators (as the case may be) and merchants  
to lower their cost of implementation, and also  
enables merchants to receive funds in real-time  
as the smart contract configured by the  
government is updated in real-time when the  
voucher recipient spends the subsidy. This can  
enable both the government and subsidy recipients  
to enjoy greater visibility of their use of funds,  
whether at the programme or individual level.  
There are few options today to facilitate fund  
ringfencing and tracking without resorting to single  
payment channels or dedicated agents (such as for  
the escrow product). One such option is to disburse  
the funds to stored value facility (SVF) operators,  
who then configure their platforms to restrict how  
the funds can be spent on their platforms. This is  
1
3
This is a continuation of their pilot in Case Study 2, Loyalty Programmes and Targeted Spending.  
16  
 
Case Study 3: Offline Payments  
In-person transactions settled through electronic  
means of payments in real-time generally require  
network connectivity. Despite high cellular network  
penetration in Hong Kong, an intermittent or lack  
of network connectivity in some situations could  
prevent the use of an electronic means of payment  
which relies on real-time validation (such as a  
payment terminal supporting settlement using a  
credit card or mobile wallet). This can ultimately  
impact the customer experience and transaction.  
This also applies to consumer-business transactions  
and peer-to-peer transactions.  
Accordingly, whilst an e-HKD could serve the role  
of a “digital cash” as discussed in Case Study 1,  
it may not be the sole solution to overcome the  
inertia of some consumers and merchants in  
adopting electronic payments. Other factors could  
also dilute the value proposition of an e-HKD,  
like charging fees to create incentives for merchant  
acquirers and technical service providers (involved  
in using and supporting an e-HKD ecosystem).  
(
1) Standard Chartered Bank (SCB) and  
Giesecke+Devrient (G+D) and (2) ICBC (Asia)  
explored in their pilots the storage and transacting  
of e-HKD via physical and electronic mediums for  
transactions between consumers and businesses  
across offline and online contexts (see Figure 5).  
A hypothetical e-HKD is stored using secure  
elements within smartphone wallets and physical  
smart cards. This can then be transacted offline  
using proximity-based technologies such as near-  
Similarly, whilst smartphone penetration in  
Hong Kong has already reached 97% as of 2022,  
certain segments of the population may not have  
access to a smartphone, or prefer to conduct  
transactions in-person using cash. This could be  
the result of ingrained behaviours, a steep learning  
curve, or upfront and ongoing costs. This applies  
equally to businesses that may be reluctant or  
even unable to justify electronic means of  
payments, given that cash already satisfies their  
current needs by enabling them to settle in an  
intuitive and resilient manner.  
field communications (NFC) with safeguards  
against double-spending . These offline  
transactions are settled with finality and funds  
can be used immediately in subsequent offline  
transactions. This is in contrast to certain payment  
schemes where transactions are reconciled at day-  
end and netted for settlement later.  
Figure 5 – Offline Payments  
In SCB and G+D’s pilot, the mediums are designed  
to enable secure and consecutive dual offline  
payments in persistently offline settings. This  
allows for funds settled offline to be immediately  
available for use in subsequent offline transactions,  
with the flexibility of allowing offline payments to  
be synchronised online in a seamless manner when  
connectivity is available.  
1
4
NFC allows for the contactless communication between devices over short distances and is often triggered by holding the  
NFC reader of two devices closely together.  
1
5
This is enabled by cryptography, software and hardware-level protections. This asynchronous characteristic would typically  
be guarded against fraudulent transactions initiated by malicious actors by assigning a digital signature to each digital wallet  
owner (such signature being computationally infeasible for malicious actors to replicate). Each transaction would need to be  
digitally signed and validated before it can be posted onto an e-HKD digital wallet or network.  
1
6
A dual offline payment is when both parties to the transaction are offline.  
17  
 
 
 
Tokenised deposits have the potential to transform  
transactions in terms of visibility and execution efficacy,  
by enabling transacting parties to integrate separate  
processes, stakeholders, and data points into a  
unified, end-to-end flow.  
Case Study 4: Tokenised Deposits  
Tokenised deposits” is a developing area  
Tokenised deposit payments bear many similarities  
to today’s processes in effecting interbank transfers.  
Nevertheless, they can facilitate financial institutions  
in enabling their consumers and business users to  
reconcile transactions faster and with greater  
transparency through richer, end-to-end integration  
across different systems. This is in contrast to  
existing payment processes and systems which  
may not provide the same level of end-to-end  
integration. Financial institutions and other  
relating to tokenisation . It currently does not  
have a universal industry definition or standard,  
but is generally understood to refer to digital  
representations of bank deposits where money  
deposited with a bank is minted on that  
institution’s own blockchain ledger with the backing  
of that financial institution‘s balance sheet .  
When a depositor transfers their tokenised  
deposits to another institution, the institution can  
hypothetically make an interbank transfer using a  
wholesale CBDC (wCBDC) to the beneficiary’s  
financial institution on the HKMA’s ledger whilst  
simultaneously burning the token on their own  
ledger. Like bank deposits today, tokenised  
deposits are intended to be a claim on the relevant  
bank and not the central banking institution.  
intermediaries may also apply additional checks  
on payment receipts resulting in funds not being  
immediately credited to say, a business.  
In addition, payments may not be supported  
post business hours or during the weekend.  
Transacting parties may also be required to  
manually track and complete costly reconciliations.  
As a result, transacting parties may incorporate  
additional processes to manage liquidity, reconcile  
flows based on different data sources, and prepare  
onward payment instructions for processing.  
These processes can unpredictably prolong the  
execution of a business transaction.  
Whilst tokenised deposits and e-HKD are  
conceptually separate in terms of backing, and  
tokenised deposits may be issued without involving  
an e-HKD, this case study pools these together  
to examine how different tokenised deposit  
implementations could be integrated within  
the same ecosystem.  
1
7
Tokenisation (in the context of blockchain technology) refers to the process of converting the ownership rights to an  
asset into a digital form.  
1
1
8
9
Minting refers to the process of creating new tokens, whilst burning refers to the process of destroying existing ones.  
The use of the term “tokenised deposit” and the characteristics described in this report in relation to a “tokenised deposit”  
apply solely in the context of the pilots described in this report, and are not intended to indicate or conclude what constitutes  
a “tokenised deposit”.  
18  
 
 
 
Figure 6 – Tokenised Deposits with wCBDC Settlement  
In a global first, Visa alongside Hang Seng Bank  
and HSBC explored in their pilot the atomicity  
and interoperability of on-us and cross-chain  
payments across a variety of business scenarios  
using tokenised deposits (see Figure 6).  
could also be useful for expanded intrabank  
use in the future such as intragroup liquidity  
management and accounting.  
Case Study 5: Settlement Instructions  
for Web3  
Where tokenised deposits are used in conjunction  
with a hypothetical wCBDC, transactions could  
potentially be settled around-the-clock and in an  
atomic manner from end to end. This represents an  
improvement compared to the limited availability  
of conventional payment systems and the variable  
number of dependencies imposed by intermediaries  
in further processing the transactions. This in turn  
improves liquidity management for the transacting  
parties because of reductions in settlement times  
and collateral usage, and enhances the overall level  
of transparency by allowing transacting parties to  
check the status of the transaction in real-time and  
identify pending transactions for follow-up.  
Web3 is the overarching theme for the next  
generation of the internet, with a focus on the  
concepts of decentralisation, tokenisation and  
blockchain-based platforms. It has led to the  
emergence of new types of transactions involving  
decentralised applications and digital assets  
such as non-fungible tokens (NFTs). Depending on  
the marketplace or exchange, many platforms may  
only accept “cryptocurrencies” and stablecoins  
which may not be readily accessible. Furthermore,  
off-chain funding arrangements via fiat may entail  
lengthy and complex processes.  
In this regard, an e-HKD could act as a bridge  
between the conventional fiat economy and  
the new Web3 economy, and in turn promote the  
development and adoption of Web3. To facilitate  
this, an e-HKD could support direct integrations  
with decentralised applications and blockchain  
The use of a global correspondent network built  
using distributed ledger technology (DLT) also  
opens the use of tokenised deposits beyond just  
payments. A programmable token for financial  
institutions to integrate into their own workflows  
2
0
On-us refers to a payment where the initiating and receiving financial institution are the same and there is no interbank  
movement of funds. This is also referred to as a book transfer.  
2
1
Excluding the FPS where retail peer-to-peer transactions are expected to be credited to the recipient in real-time.  
19  
 
 
networks, to allow for more seamless funding into  
and withdrawal out of Web3.  
Case Study 6: Settlement of Tokenised Assets  
Tokenisation has begun to make inroads into the  
conventional economy, with an increasing number  
of real world assets eligible for representation in  
a digital form.  
Mastercard explored in their pilot the “wrapping”22  
of e-HKD for use on a non-native blockchain (see  
Figure 7), by simulating the purchase of physical  
items and the contingent exchange of NFTs (each  
representing a digital certificate of authenticity for  
the physical item) on a tokenised asset network.  
This network is a non-native blockchain from the  
perspective of the e-HKD.  
Through tokenisation, asset owners may discover  
new buyers for their assets and be able to engage  
more than one buyer as a result of being able  
to fractionalise their assets. In addition, potential  
buyers would have greater visibility into the details  
and transaction history of each asset, providing  
them with greater assurance and certainty.  
The process of “wrapping” enables the value of  
the e-HKD to be safely used on such network by  
intended parties away from its native platform.  
In addition, the use of a smart contract also ensures  
that the payment is contingent on the successful  
delivery of the physical item.  
Tokenisation could also be used to represent  
legal rights to assets such as title deeds, although  
regulatory changes may be needed to facilitate this.  
The market for tokenisation is still in its early stages,  
and there are many opportunities across asset  
classes which have yet to be realised. Where there  
is a business case, tokenisation has the potential  
to drive the next wave of economic activities.  
Figure 7 – Settlement in Web3 using e-HKD  
2
2
As blockchains may not always be interoperable, “wrapping” refers to the conversion process into a token for use on another  
blockchain. In Mastercard’s pilot, it is assumed that the e-HKD is based on blockchain architecture.  
2
3
Fractionalisation refers to the concept of dividing an asset into smaller units, where each unit represents a proportional  
ownership of the asset. This allows more than one person to benefit from the asset (in proportion to what they own).  
20  
 
 
Fubon Bank and Ripple explored in their pilot the  
agreed purposes. By tokenising and fractionalising  
such rights, borrowers may borrow from more than  
one lender (akin to a “retail syndication loan” )  
use of tokenised real estate assets in granting a  
home equity line of credit (HELOC) to a real estate  
owner using a hypothetical e-HKD (see Figure 8).  
When the lending protocol is triggered, property  
lien tokens are used as collateral by the bank in  
minting a residential mortgage loan, and the loan  
amount for drawdown is then credited to the owner  
in e-HKD. The process today is operationally-  
intensive for lenders and can span multiple systems.  
In this connection, the model of token-backed  
lending could enable lenders to provide a more  
efficient service to potential real estate owners to  
realise additional liquidity, which can in turn  
encourage uptake of such facilities.  
at different interest rates. Borrowers may also be  
able to obtain secured lending for smaller nominal  
amounts than if they were to borrow from a single  
lender. In essence, tokenisation could enable  
borrowers to access different lending options and  
terms. This could also create a market for smaller  
property-backed loans that banks would not  
typically entertain. In addition, this model of token-  
backed lending could apply to other asset classes,  
unlocking liquidity for a range of assets.  
Furthermore, it is currently difficult for lenders to  
enforce how loan proceeds are spent after their  
disbursement. Given that a programmable e-HKD  
could facilitate ringfencing of the proceeds, lenders  
may be able to offer more competitive interest rates  
for loans issued using an e-HKD, as they would be  
less exposed to the risk of the loan proceeds being  
used for prohibited purposes.  
In a similar vein, BCG, HKT Payment Limited and  
ZA Bank explored in their pilot the tokenisation  
of pledging rights to an asset, and the feasibility  
of developing a token-backed secured loan.  
The transaction is settled using a hypothetical  
e-HKD, and the funds are ringfenced for the pre-  
Figure 8 – Tokenisation of Real Estate Assets  
2
2
4
5
In Fubon Bank and Ripple’s initial implementation for their pilot, the tokens represent the property liens for the real estate.  
A HELOC is a credit facility extended to a real estate owner allowing them to borrow against (or draw down from) excess  
equity in their property.  
2
6
Syndication loans are typical for large value institutional transactions due to the interest of multiple parties in financing the  
loan, but are less common in the retail space.  
21  
 
 
 
4
Evaluation  
This section sets out the HKMA’s overall assessment of the potential  
use cases for an e-HKD and related technical considerations following  
Phase 1 of the e-HKD Pilot Programme.  
_
_________  
4.1 Pilot Feedback and Assessment  
Hong Kong’s retail payment ecosystem currently  
provides consumers and businesses with a wide  
range of means to make and receive payments,  
and this is enabled by well-established, well-  
connected and robust financial infrastructure such  
as the Faster Payment System (FPS). With this  
in consideration, an e-HKD would need to provide  
additional unique value to the current retail  
payment ecosystem to substantiate the case for  
its issuance, such as applications which can only  
be supported by an e-HKD.  
such unique value at scale to substantiate the  
issuance of an e-HKD would very much depend  
on the pace of relevant developments in the retail  
payment ecosystem, and accordingly would be  
subject to further investigation.  
4
.1.1 Programmability  
Programmability generally refers to the ability of  
a software application or hardware device to  
accept and execute a set of code. As this term is  
considered ill-defined in the context of payments  
and related concepts, the term “programmable  
e-HKD” is used solely in the context of this report  
to refer to a hypothetical e-HKD incorporating  
programmability features.  
There are also settlement inefficiencies today which  
are the result of longstanding business norms and  
processes, rather than deficiencies in technology.  
These inefficiencies will need to be addressed to  
realise the full potential of new technologies,  
and cannot be solved solely by issuing an e-HKD,  
despite the technical benefits that it may bring.  
Wider adoption of retail conditional settlements  
A programmable e-HKD could unlock new types  
of transactions for consumers and businesses, by  
facilitating the wider adoption of conditional  
settlements for retail transactions. This could  
create mutual incentives for transacting parties  
to complete the transaction in a timelier manner,  
which could be useful for certain interactions where  
consumers are used to paying in advance.  
Based on the learnings and feedback from pilot  
participants, including those from users involved  
during the pilots, Phase 1 of the e-HKD Pilot  
Programme uncovered three key areas where an  
e-HKD could add unique value to consumers  
and businesses and address their evolving and  
future needs. These are: programmability,  
tokenisation, and atomic settlement.  
An e-HKD could also facilitate “open-loop system”  
conditional settlements, where related payment  
conditions can apply regardless of the means  
used to make the payment. This means transacting  
parties can benefit from conditional settlements  
without the limitation of having to use the same  
It should, however, be noted that the realisation  
of such unique value in the pilots may have been  
made possible by the presumed existence of the  
relevant prerequisites, such as the readiness of  
other participants and supporting arrangements in  
the ecosystem. However, the potential for realising  
means of payment .  
2
7
In contrast, “closed-loop systems” would require transacting parties to use the same means of payment.  
23  
 
In the “Consumer Protections” pilots (under Case  
Study 2, Programmable Payments), a scalable,  
by providing them with more means to attract new  
consumer segments and build consumer rapport.  
retail escrow” prepayment product facilitating  
Furthermore, an e-HKD could facilitate “open-  
loop system” conditional settlements, enabling  
customisations to be applied regardless of the  
means used to make the payment. For instance,  
consumers would be able to spend vouchers issued  
by merchants without the limitation of having to  
use a specific e-wallet. With that said, the process  
of implementing programmability will likely require  
some technical expertise, and businesses will either  
need to possess this expertise themselves or  
partner with a financial institution or technology  
partner that can assist with implementation.  
conditional settlements with e-HKD could  
incentivise businesses to provide good, consistent  
service from the outset to build trust with  
consumers, whilst providing consumers with the  
confidence to engage with businesses in the  
absence of initial trust. The business also provides  
the good or service with the confidence that the  
consumer has already made or can make payment.  
In one set of surveys , 93% of consumers  
responded that conditional prepayments with  
e-HKD could alleviate their concerns of losing their  
money as a result of a merchant going bankrupt,  
whilst 70% of merchants responded that conditional  
prepayments with e-HKD would help build loyalty.  
In the “Loyalty Programmes and Targeted  
Spending” pilots (under Case Study 2,  
Programmable Payments), a low-cost alternative  
using a hypothetical e-HKD could enable merchants  
of all sizes to build and execute their loyalty  
programmes. One benefit of note was the potential  
of an e-HKD to automate the issuance, tracking  
and reconciliation of vouchers and rewards.  
In the “Investments” pilots (under Case Study 2,  
Programmable Payments), the investor benefits  
from faster order fulfilment as the fund manager  
has an incentive to fulfil the investment fund order  
as soon as possible to receive the investor’s  
prefunding. The fund manager is also incentivised  
to facilitate conditional settlements as the unified  
process enables them to incur less operational  
overhead and risk.  
During one pilot’s testing , both consumers and  
merchants found the mechanism to automatically  
apply rewards to consumers’ transactions easy to  
use. Merchants also noted that its low cost and  
ability to implement sophisticated and frequent  
promotions were attractive features. In another  
In this connection, surveyed financial institutions29  
viewed that the benefits of atomic delivery versus  
payment settlements, and reduced settlement and  
counterparty risk were attractive factors supporting  
this mode of conditional settlements using e-HKD.  
survey, 80% of respondents had a favourable  
view towards programmability being a unique  
feature of an e-HKD, should it be issued.  
Flexibility in ringfencing and tracking funds  
Level playing field for businesses  
Last but not least, a programmable e-HKD could  
enable the ringfencing and tracking of funds to  
be achieved with greater ease and less operational  
overhead. Instead of distributing funds to, for  
instance, stored value facilities (SVFs) which then  
configure the restrictions on their platforms, the  
intended use of the funds could be programmed  
from the outset to govern how it can be spent  
irrespective of the payment platform. This could  
also enable the funds to be used across different  
payment platforms, rather than being limited to a  
A programmable e-HKD has the potential to  
level the playing field for businesses, by allowing  
businesses of all sizes to integrate and automate  
payment-related processes, as well as to develop  
and provide goods or services with a greater degree  
of customisation and flexibility. This could benefit  
small businesses in particular (which may be limited  
by financial, operational or technical resources),  
2
2
3
3
8
9
0
1
Survey sample: 110 consumers and 10 merchants  
Survey sample: 12 financial institutions and a small population of investors  
The pilot involved around 150 individual participants, five merchants, and 400+ transactions  
The pilot involved over 150 individual participants, seven merchants, and 500+ transactions  
24  
 
 
 
 
single payment platform. In a pilot exploring the  
ringfencing of loan proceeds (under Case Study 6,  
Settlement of Tokenised Assets), around 60% of  
surveyed consumers showed interest in loans with  
ringfenced proceeds, if it came with incentives such  
as a lower interest rate.  
crucial foundation to accelerate industry-wide  
innovation, and facilitate interoperability between  
different implementations of programmability in  
the future. Similar work could also be done in the  
other key areas of tokenisation and atomic  
settlement as discussed in later sections.  
In addition, careful consideration should be given  
to how the concepts of programmable payments,  
programmable money (see Figure 9), or perhaps  
an extension of these concepts would apply to an  
e-HKD, should it be issued with programmable  
features. As discussed in an earlier section, an  
e-HKD issued as a programmable money could  
run the risk of undermining the public’s trust in  
the legal tender and in turn, affect monetary and  
financial stability.  
Programmability at scale  
Whilst programmability brings about a number of  
commercial merits, it will be important to consider  
how programmability at scale can be achieved.  
This refers to the process of creating an ecosystem  
with the necessary infrastructure so that businesses  
are equipped with the right incentives, resources  
and expertise to make the most of programmability.  
It may be worthwhile to consider developing a  
repository of smart contract templates for common  
business activities. Technical frameworks, such  
as cross-system protocols and standards for  
identifying merchants, would also need to be  
developed in collaboration with the industry.  
Furthermore, a holistic review of how an e-HKD  
could look and feel for the average consumer  
would be important for consumer adoption.  
The question of whether and how central banks  
should implement certain programmability features  
at the time of issuing an rCBDC will also require  
deliberation, as different features will entail  
different levels of risk. For instance, an rCBDC  
issued as a programmable money may be more  
susceptible to cybersecurity risks, as it may present  
more mediums for external threats to inject  
malicious code. A delicate balance will therefore  
need to be struck between facilitating the industry’s  
development of innovative products and services,  
and ensuring the overall safety of monetary and  
financial systems.  
This may involve identifying and specifying core  
programmability functions that should be provided  
to consumers via, for instance, their e-wallet’s  
smartphone application. This work could serve as a  
Figure 9 – Programmable Payments and Programmable Money  
25  
4
.1.2 Tokenisation  
Tokenisation (in the context of blockchain  
technology) refers to the process of converting the  
marginal cost of supporting these new types of  
transactions.  
ownership rights to an asset into a digital form .  
It has gained popularity in recent years, particularly  
in the space of Web3 and real world assets.  
When applied appropriately, tokenisation could  
enable asset owners to access marketplaces with  
increased liquidity, efficiency, and transparency  
compared to conventional marketplaces.  
Tokenisation is also used by financial institutions  
in minting tokenised deposits, which are generally  
understood to refer to digital representations of  
bank deposits.  
Central banks have also continued their study  
and work on potential applications for tokenisation,  
as the range of assets eligible for tokenisation  
continues to expand. In February 2023, the HKMA  
supported the HKSAR Government in issuing  
the world’s first tokenised government green bond,  
and published a report in August 2023 to share the  
experience of the issuance with a view to providing  
a blueprint to market participants interested in  
issuing tokenised bonds in Hong Kong. The report  
also outlined potential next steps to promote  
the wider use of tokenisation technology in  
Backbone for Web3 transactions  
Hong Kong’s bond market .  
An e-HKD, were it to be “wrapped” or even  
issued on a blockchain, could be used to directly  
settle transactions relating to Web3 and tokenised  
real world assets. In this connection, an e-HKD  
could eliminate the risk of conversion losses and  
volatility associated with “cryptocurrencies” and  
stablecoins . This is particularly relevant in Web3,  
where “cryptocurrencies”, stablecoins and off-chain  
arrangements are typically used for marketplace  
transactions with no readily available option to  
transact, say, using a HKD. In a small-scale survey  
conducted with digital natives as part of the  
Wider development of token-based systems  
As for tokenised real world assets, an e-HKD has  
the potential to enable access to increased liquidity  
and accelerate the development of innovative  
token-based systems within the industry.  
This could lead to more integrated and faster ways  
of conducting core business activities. In one  
pilot relating to tokenised real estate assets,  
a hypothetical e-HKD was shown to enable faster  
approval of loans and consequently real-time,  
around-the-clock availability, and automatic  
disbursement of funds. These industry-wide  
developments could serve as an impetus for  
businesses to revisit longstanding norms and  
processes, and address non-technical inefficiencies  
as part of readying their business to adopt new  
technologies to their full potential.  
6
Settlement of Web3 Transactions” case study,  
5% of respondents indicated a strong interest  
in using rCBDCs for settling Web3 transactions.  
The Government of the Hong Kong Special  
Administrative Region (HKSAR Government) issued  
a Policy Statement on Development of Virtual  
Assets in Hong Kong in October 2022, noting that  
an e-HKD could serve as a potential “backbone”  
and anchor to bridge legal tender and virtual  
These efficiencies could also be achieved in  
conjunction with tokenised deposits, which have  
the potential to bridge different chains, systems  
and applications. Although tokenised deposits and  
e-HKD are separate concepts, private sector  
innovations and developments relating to an  
assets . Nevertheless, even with these benefits in  
mind, businesses will still need to evaluate the  
3
2
It is unlikely an e-HKD would be considered a token should it be issued, given it should have the same status as a  
digital cash” instead of being a digital representation of another form of money.  
An e-HKD being an rCBDC would observe the singleness of money, where each e-HKD is always equal to a HKD  
3
3
and the underlying exchange rate between these two forms of money remains constant. In contrast, the value of  
stablecoins or “cryptocurrencies” is subject to fluctuations.  
3
4
Policy Statement on Development of Virtual Assets in Hong Kong  
(
Government of the Hong Kong Special Administrative Region, 2022)  
3
5
Report on Bond Tokenisation in Hong Kong (Hong Kong Monetary Authority, 2023)  
26  
 
 
 
 
e-HKD could be beneficial to the development of  
tokenised deposits and other parts of the retail  
payment ecosystem in Hong Kong. For instance,  
these innovations could serve as reference for  
financial institutions when designing their own  
mechanisms for tokenising deposits, which could  
help promote interoperability in the future.  
A wholesale CBDC (wCBDC) layer could also be  
established to facilitate interbank settlements.  
automated and seamlessly integrated onto a  
common programmable platform that combines  
tokenised money and tokenised assets. A unified  
ledger established in conjunction with tokenised  
deposits and a wCBDC layer could transform  
transactions in terms of visibility and execution  
efficacy, by enabling transacting parties to integrate  
separate processes, stakeholders and data points  
into a unified, end-to-end flow.  
In addition, an e-HKD could be used in a “unified  
ledger”, a concept explored in greater detail by the  
Bank for International Settlements (see Figure 10),  
where sequences of financial transactions can be  
A comparison between an e-HKD, stablecoins,  
SVFs, and tokenised deposits is provided in Table 2  
in the following pages.  
Figure 10 – Models for Interoperability between Old and New Systems  
Payment messaging model  
3
6
III. Blueprint for the future monetary system: improving the old, enabling the new  
Bank for International Settlements, 2023)  
(
27  
 
Figure 10 – Models for Interoperability between Old and New Systems (continued)  
Private tokenised ledger model  
Full-fledged unified ledger  
Source: BIS  
28  
Table 2 – Comparison of e-HKD, Stablecoins, Stored Value Facilities and Tokenised Deposits  
e-HKD  
Stored Value  
Facilities (SVFs)  
Tokenised  
Deposits  
Stablecoins  
(
rCBDC)  
Regulated entities  
registered with  
the HKMA  
Authorized institutions  
under the  
Banking Ordinance  
Private, usually  
unregulated entities  
Statutory authority  
User float is fully  
segregated from funds of  
operators and protected  
against claims by other  
creditors of SVF issuers in  
all circumstances per  
Generally 100%  
asset-backed by fiat  
currencies or other  
cryptocurrencies  
Commercial bank balance  
sheet fulfilling the  
appropriate liquidity  
coverage ratio (LCR)  
Central bank’s  
statutory authority  
supervisory requirements  
Any other accepted user  
on the network ready to  
receive it, and within  
the bank’s KYC/AML  
risk appetite  
Any other user on  
the platform, and also to  
users of other  
Any other user  
ready to receive it  
Any other user on the  
network  
FPS participants  
Generally protected by  
the Deposit Protection  
Scheme, unless otherwise  
N/A  
N/A  
N/A  
excluded  
Legal tender,  
exchangeable for  
other forms of fiat  
Generally redeemable for  
fiat money or tradeable to  
other users at market rate  
Redeemable for fiat money  
from the issuer  
Repayable in  
fiat money  
Note: The characteristics relating to an e-HKD are not indicative and do not infer that an e-HKD will be issued. In addition,  
the characteristics relating to stablecoins and tokenised deposits are not definitive and should not be interpreted as such,  
given that they do not have a clear and legal and regulatory status in Hong Kong.  
3
7
Tokenised deposits should generally be protected by the Deposit Protection Scheme unless otherwise excluded  
not all deposits are protected deposits).  
(
29  
 
4
.1.3 Atomic settlement  
Atomic settlement refers to the ability to settle  
transactions and exchange assets in a simultaneous,  
instant and contingent manner.  
commercial interests. In this connection, new  
technologies could serve as an impetus for  
businesses to revisit longstanding norms and  
processes and address non-technical inefficiencies.  
Last-mile” payment processing  
For instance, although the FPS enables real-time  
settlement for peer-to-peer transactions, external  
payment schemes such as credit cards may not  
credit funds instantaneously due to the way these  
schemes aggregate transactions for settlement.  
Financial institutions may also impose additional  
checks and holds on payments before crediting  
the funds to businesses, or process payments in  
batches instead of real-time.  
An e-HKD could work in conjunction with the  
current set of financial infrastructure to enable  
a wider audience of consumers and businesses to  
enjoy the benefits of atomic settlement across a  
greater range of transactions. This in turn could  
facilitate the adoption of electronic payments.  
Although Hong Kong’s retail payment ecosystem  
currently provides consumers and businesses  
with a wide range of means to make and receive  
payments, the “last mile” of payment processing  
in crediting funds to businesses may not always be  
conducted in real-time. This can deter businesses  
that have to closely manage their cash flows from  
taking up electronic means of payments.  
In other words, the systems and financial  
infrastructure which payments are settled in may  
be real-time, but the intermediaries processing  
the payments may not be doing so in real-time.  
Businesses may also lack well-integrated systems  
and processes to support real-time settlement  
and reconciliation.  
The pain point of “last mile” payment processing  
is the result of business, operational and technical  
factors. Whilst new technologies can facilitate the  
development of faster, more efficient processes,  
there is a crucial need for business stakeholders  
and intermediaries to review and align their  
processes and operational norms. This is necessary  
to realise the full potential of efficiencies granted  
by new technologies. These norms are typically the  
result of past process optimisations (such as  
liquidity saving arrangements), or even certain  
In addition, external payment schemes may entail  
a higher cost than the processing of physical cash,  
with processing fees subtracted by relevant  
intermediaries. These fees may deter businesses  
with thin operating margins – for example, a 3%  
interchange fee subtracted from a 10% margin  
before other costs is substantial.  
Figure 11 – Last Mile Processing  
3
8
In the context of payments, the “last mile” refers to the final stages of the payment process where the funds are actually  
credited to the recipient (which may take place beyond a payment system such as the FPS).  
30  
 
Assuming that businesses are ready to support real-  
time settlements and reconciliations, the potential  
of an e-HKD in enabling atomic settlement can  
be observed in multiple pilots. In the “Full-Fledged  
Payments” case study, a hypothetical e-HKD  
powered by distributed ledger technology (DLT) not  
only could enable merchants to enjoy the benefits  
of real-time settlements with consumers (as already  
enabled by conventional payment systems), but it  
could also mitigate business inefficiencies occurring  
outside such systems to an extent by bypassing  
intermediaries typically involved in an electronic  
payment flow. Merchants may also enjoy lower  
transaction fees.  
These settlements could also be conducted outside  
the operating hours of conventional payment  
systems. In comparison, last mile processing after  
real-time settlement in conventional payment  
systems took comparatively longer (measureable in  
hours) and were subject to fixed operating hours.  
While these new means of payment could facilitate  
faster, more efficient settlements, it will be  
necessary to evaluate if the additional benefits  
presented could be sufficient to draw consumers  
and businesses from existing means of payment.  
Adoption of offline payments  
An e-HKD could address last mile pain points  
which may be amplified in offline settings, where  
consumers and merchants may lack perpetual  
access to an online network and are forced to  
handle settlements offline.  
Surveyed merchants held a favourable view towards  
the e-HKD if it could enable intraday settlements,  
instead of “T+1” (a next day settlement benchmark  
generally expected of electronic payments) (see  
Figure 11). Merchants noted that this facilitated  
more efficient cash flow management, when say,  
making daily payments to suppliers.  
For instance, dual offline payments via an e-HKD  
could help facilitate atomic transactions across  
offline and online contexts, and enable an e-HKD  
to function as closely as possible to a “digital cash”.  
In a survey conducted under the “Offline Payments”  
In a similar vein, tokenised deposits could build  
on the current set of financial infrastructure,  
which already enable atomic settlements at the  
interbank level, and bridge settlements to achieve  
near-instant, more transparent and around-the-  
clock settlements. This assumes businesses and  
financial institutions are ready to support end-to-  
end, real-time settlements and reconciliations.  
case study , over 75% of consumer respondents  
had a favourable view towards an e-HKD  
incorporating offline functionality.  
Should this be implemented, careful consideration  
should be given to the implementation of robust  
measures to safeguard users from the risk of  
fraudulent offline transactions.  
3
9
Survey sample: 32 consumers and 7 merchants. The pilot involved close to 200 individuals and more than ten merchants.  
31  
 
4.2 Technical Considerations: DLT Interoperability and Scalability  
Whilst the focus of Phase 1 of the e-HKD Pilot  
Programme is on the commercial viability of  
potential use cases for an e-HKD, the HKMA  
considers it necessary to discuss DLTs, given its  
prevalence in the pilots under Phase 1.  
A DLT-based design could be better for future  
interoperability compared to a non-DLT one, as  
transacting entities are likely to share a common  
architecture. This could be useful, for instance,  
when integrating a wCBDC with each financial  
institution’s tokenised deposits, where end-to-end  
integration and on-chain settlement are desired.  
DLT refers to a technology architecture where a  
ledger is replicated across multiple entities, allowing  
records to be simultaneously accessed, validated  
and updated. DLTs can be useful where a  
centralised ledger may be infeasible, such as in the  
absence of a central exchange or in the absence of  
mutual trust between transacting parties.  
A DLT-based design could also enable easier  
development and study of digital currencies,  
as token standards relating to the issuance of  
DLT tokens (such as ERC20 ), DLT-related  
applications, documentation and academic research  
already exist in the public domain.  
A DLT is neither a prerequisite for a CBDC nor an  
e-HKD, and the HKMA remains open-minded to  
both DLT or non-DLT based designs (see Figure 12).  
In this connection, it would be necessary to  
consider whether a DLT could support the intended  
scale, level of interoperability, and use cases  
without compromising performance, security  
or cost-effectiveness.  
With that said, a DLT design may be less scalable  
in terms of transaction throughput. A non-DLT  
based design may also be easier and more  
cost-effective to run and govern as it is more  
aligned with today’s conventional payment systems.  
The HKMA will continue to examine different  
architectures for an rCBDC in conjunction with  
other collaborative work and projects with the  
Bank for International Settlements Innovation Hub  
(
BISIH) and other central banks.  
Figure 12 – Centralised Ledger versus Distributed Ledger  
4
0
Ethereum Request for Comments 20 (ERC20) is an Ethereum-based token standard proposed in 2015 that implements an  
API for tokens within smart contracts, enabling developers to build applications interoperable with other products and services.  
32  
 
5
Way Forward  
This section sets out the next steps for the e-HKD Pilot Programme.  
_
_________  
Phase 1 of the e-HKD Pilot Programme has  
provided valuable insights into the potential  
use cases of an e-HKD, and raised a number of  
research areas for future study.  
There is also a need to delve deeper into use  
cases in three key areas, namely programmability,  
tokenisation and atomic settlement. Continued  
partnership between the private and public sector  
will be important in establishing a way forward  
that ensures the commercial viability of an e-HKD.  
This may include establishing an optimal set of  
protocols, common infrastructure and policy.  
It will also be necessary to study distributed ledger  
technology (DLT) and related designs in detail  
given the industry’s strong interest in this area.  
One aspect requiring careful consideration is  
the positioning of an e-HKD in Hong Kong’s  
monetary and financial systems. This includes  
understanding its role in facilitating new ways of  
transacting goods and services whilst ensuring  
banking, monetary and financial stability. It will  
also be necessary to study how an e-HKD would  
interoperate with conventional payment systems,  
and to identify areas where an e-HKD could  
complement the industry’s own innovations such  
as tokenised deposits.  
The next phase of the e-HKD Pilot Programme  
will build on the success of Phase 1 and consider  
exploring new use cases for an e-HKD. It will also  
delve deeper into select pilots from Phase 1,  
with a view to further examining business and  
implementation issues identified during the pilots.  
It is worth noting that launching an e-HKD will  
involve external factors beyond those covered  
in the pilots, given that the scale and testing  
environment of these pilots are substantially  
different from real world applications. While some  
of the benefits identified may remain valid for a  
full-scale deployment, this cannot be assumed to  
always be the case. Likewise, minor frictions  
identified during the pilots could become more  
apparent or even unacceptable to users in a  
production environment. These issues will need  
to be studied further before any decision is taken.  
As part of its outreach, the HKMA will continue to  
actively engage the industry, academia and other  
stakeholders, as well as participate in international  
fora and monitor international developments on  
retail CBDCs. The HKMA will also continue its work  
under Rail 1 in laying the legal and technical  
foundations for an e-HKD in parallel.  
Phase 1 of the e-HKD Pilot Programme has  
been strongly underpinned by the joint efforts,  
experience and talents of the pilot participants,  
academia and other stakeholders. The HKMA  
expresses its gratitude for the contributions it has  
received in the process, and will continue with its  
three-rail approach in preparing Hong Kong for the  
possible implementation of an e-HKD in the future.  
In a similar vein, it will be necessary to study how  
an e-HKD could compete in use cases where there  
are existing payment solutions, and to identify other  
crucial components in achieving and supporting  
mass adoption of an e-HKD such as the creation  
of a commercial network.  
33  
6
References  
1
2
3
.
.
.
Bank for International Settlements. (2023, June 20). III. Blueprint for the future monetary system:  
improving the old, enabling the new.  
Bank for International Settlements Innovation Hub, Hong Kong Monetary Authority. (2022, October 21).  
Project Aurum: a prototype for two-tier central bank digital currency (CBDC).  
Government of the Hong Kong Special Administrative Region. (2022, October 31). Policy Statement on  
Development of Virtual Assets in Hong Kong.  
4
5
6
7
8
.
.
.
.
.
Hong Kong Monetary Authority. (2021, October 4). e-HKD: A Technical Perspective.  
Hong Kong Monetary Authority. (2022, April 27). e-HKD: A Policy and Design Perspective.  
Hong Kong Monetary Authority. (2022, September 20). e-HKD: Charting the Next Steps.  
Hong Kong Monetary Authority. (2023, August 24). Report on Bond Tokenisation in Hong Kong.  
Hong Kong Monetary Authority, Bank for International Settlements Innovation Hub Hong Kong Centre,  
Bank of Israel. (2023, September 12). Project Sela: an accessible and secure retail CBDC ecosystem.  
35  
Appendix A: Factsheets / Supplementary Reports  
Pilot Participant / Use Case  
QR Code / Link  
Pilot Participant / Use Case  
QR Code / Link  
Alipay Financial Services  
(
HK) Limited  
ARTA-Emali HK Limited  
Programmable Payments  
Loyalty Programmes,  
Programmable Payments  
Investments  
Government Disbursements  
Bank of China  
China Construction Bank (Asia)  
Corporation Limited (CCB (Asia))  
(
Hong Kong) Limited  
Programmable Payments  
Prepayments  
Programmable Payments  
Prepayments, Subscriptions  
Fubon Bank  
Giesecke+Devrient (G+D)  
Standard Chartered Bank  
(
Hong Kong) Limited  
Ripple Labs Inc.  
(
Hong Kong) Limited (SCB)  
Settlement of Tokenised Assets  
Real Estate Asset Tokenisation  
Offline Payments  
Hang Seng Bank Limited  
Hang Seng Bank Limited  
The Hongkong and Shanghai  
Banking Corporation Limited  
Programmable Payments  
Loyalty Programmes,  
Government Disbursements  
(
HSBC)  
Visa Inc.  
Tokenised Deposits  
The Hongkong and Shanghai  
Banking Corporation Limited  
Industrial and Commercial  
Bank of China (Asia) Limited  
(
HSBC)  
(
ICBC (Asia))  
Full-Fledged Payments  
Programmable Payments  
Loyalty Programmes  
Offline Payments  
Boston Consulting  
Group (BCG)  
Mastercard Asia/Pacific  
Pte. Ltd.  
HKT Payment Limited  
ZA Bank Limited  
Settlement of Web3 Transactions  
Settlement of Tokenised Assets  
Token-Backed Secured Loan  
Note: Any positions or statements made in the above factsheets / supplementary reports as prepared by pilot participants do  
not necessarily represent the views of the HKMA. Furthermore, any characteristics described in the above factsheets /  
supplementary reports relating to an e-HKD are not indicative, and also do not infer that an e-HKD will be issued.  
36  
Appendix B: Glossary  
Term  
API  
Definition  
Application programming interface  
Hong Kong Applied Science and Technology Research Institute  
Bank for International Settlements  
Bank for International Settlements Innovation Hub  
Bank for International Settlements Innovation Hub Hong Kong Centre  
Central Bank Digital Currency  
ASTRI  
BIS  
BISIH  
BISIH HKC  
CBDC  
rCBDC  
wCBDC  
DLT  
Retail Central Bank Digital Currency  
Wholesale Central Bank Digital Currency  
Distributed ledger technology  
DvP  
Delivery versus payment  
ERC20  
FPS  
Ethereum Request for Comments 20  
Faster Payment System  
FSS  
Fintech Supervisory Sandbox (HKMA)  
House equity line of credit  
HELOC  
HKD  
Hong Kong dollar  
HKMA  
HKSAR  
NFC  
Hong Kong Monetary Authority  
Hong Kong Special Administrative Region  
Near-field communications  
NFT  
Non-fungible token  
SVF  
Stored value facility  
Note: Definitions where provided are solely for indicative purposes in the context of this report, and should not be interpreted  
as definitive or conclusive given that they may evolve over time.  
37  
Copyright © Hong Kong Monetary Authority  
October 2023  
All rights reserved.